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A bolder, more effective regulator?

In order to adapt in an ever-changing pensions environment, the Pensions Regulator (TPR) has conducted a review of all aspects of its regulatory remit and is becoming more robust in the way it handles compliance.

Speaking earlier this year, TPR's Chief Executive, Lesley Titcomb, commented that issues such as the shift in pension provision from defined benefit (DB) to defined contribution schemes, the UK's exit from the European Union and the implementation of what is now the Pension Schemes Act 2017 are just some of the challenges facing TPR going forward.

TPR issued its latest Corporate Plan in April 2017. The plan lists TPR's eight key priorities which focus on scheme governance, effective regulation, effective management of automatic enrolment, driving up standards of record keeping and trusteeship and quicker interventions where underfunding or avoidance is suspected in DB schemes.

The plan also states that TPR is evolving to become a bolder, more effective regulator, continuing to move towards an approach "that prioritises quicker and more efficient enforcement". TPR reiterates that it may take enforcement action where its previous efforts to encourage schemes to comply with the law are not met and it encounters wilful or persistent non-compliance or it uncovers evidence of malpractice.

But what has this meant in practice?

Recent enforcement action

One of the most high profile cases TPR encountered last year involved BHS. Following on from its investigation into the scheme and with no meaningful offer being given by the parties involved to provide redress to the thousands of affected members, TPR began enforcement action. We consider the BHS case in more detail here, but the outcome was that TPR secured a settlement sum of £363m from Sir Philip Green for the benefit of the scheme members.

TPR has also pursued less high profile schemes for non-compliance with legal requirements. In January this year it issued the first fines against several master trust schemes for failing to complete the required annual statement, signed by the chair of the trustees, within seven months of the scheme year end. TPR emphasised that these fines were a result of its "ongoing focus on ensuring that trustees comply with the requirements of good governance."

Further fines have followed. In a case involving the first criminal conviction secured by TPR, a court issued fines and costs totalling more than £16,000 to a solicitor and the firm at which he is a partner for refusing to give TPR documents that had been requested as part of an investigation. The head of a charity has also been convicted by a court and ordered to pay fines totalling £6,500 for refusing to provide TPR with documents it requested in relation to an investigation into unusual scheme investments. Most recently, TPR brought a successful criminal conviction against a former office manager who refused to provide information when requested. The office manager had been employed by a company involved in a potential £13.75 million pension scam. The court ordered her to pay a £4,000 fine, £550 costs and a £170 victim surcharge. These cases serve as a warning that TPR will not tolerate continued non-compliance with its requests and legal notices.

It was also announced at the beginning of this year that TPR will begin to carry out spot checks on employers across the UK to ensure that they are complying with their automatic enrolment duties as part of TPR's ongoing enforcement activity. TPR will be making visits to employers who have been judged to be at risk of failing to meet their duties. However, when investigating non-compliance, TPR stresses that it will offer assistance to employers to get them back on track and help them to perform their duties more effectively, only taking enforcement action where necessary. In June, TPR confirmed that these checks have been carried out amongst employers across Greater Manchester, Birmingham and Sheffield and that other towns and cities should expect short-notice visits in the coming weeks.

These spot checks serve as a warning that employers cannot ignore their automatic enrolment duties and that TPR will not disregard or tolerate non-compliance. A recent example of TPR's willingness to flex its muscle is the high street shoe firm which "turned a £400 fine into a bill for more than £40,000 after claiming it was too busy to meet its pension responsibilities". The firm received a £400 fixed penalty notice after failing to comply with its automatic enrolment duties. This fine was paid however the company continued with its non-compliance despite reminders and warnings from TPR. TPR then issued the firm with an escalating penalty notice and the fine increased by £2,500 per day until the firm met its automatic enrolment duties, resulting in the fine reaching £40,000 before the company finally became compliant.

We have previously mentioned the Government's Green Paper on the key challenges facing DB schemes. The paper suggested that TPR could be given more powers to support employers and schemes that are "stressed" and for TPR to become more proactively involved to prevent and intervene in issues of non-compliance.

Given the result of the snap general election, it is not clear which, if any, proposals in the Conservative party manifesto to increase the powers of TPR will be taken forward. In its response to the Green Paper consultation, published after the election, TPR highlights a number of additional powers which it believes will help it to become a more proactive regulator. In particular, TPR suggests that changes to its scheme funding powers, information-gathering powers and the introduction of a DB chair’s statement would help it to set clearer standards and to monitor against those standards on an ongoing basis, not just when a breach is detected.

The DWP has subsequently stated that it will publish a White Paper this winter about the future of DB pension schemes which will provide “more proactive powers rather than reactive” for TPR.

As evidenced in its Corporate Plan and in its recent enforcement action, TPR is keen to ensure that employers and trustees perform their duties correctly and effectively and that pension scheme members are protected. Over the past few months it has demonstrated that it can and will use its powers where necessary. Experience and, in some cases, abuse of the current pensions framework, is causing it to evolve into a bolder regulator but how much more effective it can become will partly depend on whether there is political consensus on what further powers it should be given.

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